Unusual Partnership Yields $1 Million Cleanup Grant for Brownfield

On January 15, 1998 Governor Tom Ridge and Secretary of Community and Economic Development Samuel A. McCullough announced that the Administration had awarded the largest grant to date - $1 million - from the Industrial Site Redevelopment Fund to remediate a contaminated Pennsylvania site which my client will redevelop. The grant is the fruit of an unusual partnership made up of private enterprise and federal, state and local governments. The cleanup has as its goal not just the redevelopment of a so-called brownfield, but also the revitalization of the Pennsylvania town in which it is located.

In addition, my client, an investor, hopes to profit from the redevelopment that will occur after the site is remediated. The eyesore known as the O'Brien Machinery site is contaminated with, among other things, PCBs. The O'Brien Machinery Company owns the 22-acre parcel in the center of Downingtown's downtown area. It sits cheek by jowl with attractive middle class residences made of stone and brick. The site, dominated by now-dilapidated warehouse-type structures, was originally used to recondition massive electrical transformers, which contained PCBs. In 1992, the Environmental Protection Agency became aware of the contamination at the site, and discovered that the site's owner was now bankrupt. In order to prevent endangerment to human health and the environment, the EPA sent an emergency response team to the site to clean up the PCB contamination. While some PCBs remain at the site, the EPA believed that it had remediated the site sufficiently to prevent an imminent endangerment.

The remediation cost the agency $1,063,313, and the agency filed a lien against the property in early 1997 pursuant to its authority under 42 U.S.C. '9607(l) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). Further remediation will be necessary to make the site viable, whether used as an industrial or a residential property. The owner of the site is bankrupt and without funds, and still owes back real estate taxes on the site.

Despite these daunting facts - continued presence of contamination, the presence of a CERCLA lien, and liability for back taxes - my client, Gary Silversmith, President of Serena, Inc., a Washington, DC investment firm, had the vision to launch this daring enterprise 18 months ago, with a plan to develop a townhouse neighborhood on the site once it is remediated. Here is how we put the project together, obtained the necessary funds, and garnered support from the Borough, Chester County, the Commonwealth, the Pennsylvania Department of Environmental Protection, and the U.S. Environmental Protection Agency.

The project could not have been conceived of in the absence of the innovative Pennsylvania Brownfields initiative. In 1995, Pennsylvania passed a package of bills known as the Land Recycling Program. The goal of the program is to encourage private, voluntary cleanup of industrial sites that are contaminated, by providing a combination of monetary and legal incentives to private parties. The incentives include grants, loans, and promises by the Commonwealth not to sue or liability releases for those who remediate polluted sites under the program. In addition, the program offers a variety of and more flexible cleanup standards to encourage innovative technologies and techniques.

Under the leadership of Governor Tom Ridge, Pennsylvania has shown that cooperation between government and business can cause the remediation of contaminated property to occur faster than the traditional adversarial relationship ever could. Pennsylvania was the first state off the mark on this issue, and the success of the Land Recycling Program has caused awards to be heaped on it. The Ford Foundation announced that the Program had won its Innovations in Government Award. The American Legislative Exchange Council declared the program the national model for industrial site recycling, and the Council of State Governments awarded the program its 1997 Innovations Award. To date, after only two years, 264 sites have been added to the Land Recycling Program, representing contaminated property both in the center of urban areas and in the more rural and undeveloped counties, and more than 100 of these sites have been remediated.

Without a doubt, Pennsylvania's success story would not have occurred without the whole-hearted endorsement of the Brownfields scheme by the employees of the Pennsylvania Department of Environmental Protection. The common sense approach mandated by the Pennsylvania statute is more a matter of attitude than a matter of legislation. Historically, the regulators have believed themselves duty-bound not only to be protective of the environment and public health, but also to be overprotective. In Pennsylvania, there was an expressed preference for a cleanup to take the site back to pristine levels.

While it took some of Pennsylvania's regulators a while to buy into the program (it's hard to move from the role of adversary into the role of colleague for some environmental professionals), their receptiveness to innovation and common sense helped implement the package of statutes that have made the Brownfields program work. The Pennsylvania Brownfields program recognizes a need for a "flexible" approach to cleanup, but having flexibility articulated in a statute is meaningless unless such flexibility is implemented. The impressive voluntary cleanup results under the program show that the regulators have successfully integrated the flexible approach into their job descriptions.

A brownfields site in Bucks County, Pennsylvania is a good example of the attitude change that has made Pennsylvania attractive to brownfields entrepreneurs. In 1989, TCE was discovered in the groundwater beneath an old industrial site. Consistent with the attitudes then prevailing, the regulators required the owner of the site to install a pump-and-treat system, at the cost of close to a million dollars, to remove the TCE from the groundwater. In 1997, after pumping and treating for almost a decade, sampling results showed that the TCE levels had not changed significantly. The owner decided to approach the PADEP with a new plan, consistent with the land recycling program's flexible approach, to protect the surrounding residential development in a more cost-effective way: abandon the pump and treat system and instead install whole-house filtration systems in every home, to be maintained until the groundwater is clean. This so-called "engineering control," aimed at protecting human beings from coming into contact with the contaminant without attempting the impossible cleanup of the groundwater, met with the PADEP's approval, as long as the homeowners themselves approved the plan. Each and every homeowner signed a consent, agreeing to the cleanup. The remediator will receive an Act 2 land recycling release.

The Pennsylvania statute encourages the use of institutional and engineering controls such as the one I just described. It is a commonsense approach to an often intransigent environmental problem, cleaning up volatile organic compounds that have historically been present in groundwater. It could not have been undertaken without the imprimatur of the Land Recycling Program, or the whole-hearted endorsement of the PADEP representatives. The plan is more protective of human health than the ineffective pump and treat program that seemed the inevitable cleanup answer ten years ago.

In addition to this new common sense approach to cleanup, certain elements of the Land Recycling Program are key to any project's success. The program provides for outright grants and loans to qualified applicants to help pay for the remediations of contaminated sites. Then, once a remediation has been completed, the Commonwealth will enter into a covenant not to sue, or will release from liability, the remediator or one who buys from the remediator for the area of the site--or the whole site, if applicable--that has been cleaned up. Even before cleanup, the Commonwealth will enter into prospective purchaser agreements with buyers who want to take title to the site only if there is no environmental risk, incorporating the seller's promise to remediate. The Pennsylvania program provides that certain redevelopment remedies are presumptively approved, and may be undertaken by remediators without prior approval of the State's environmental agency. The program also provides special rules for contaminated sites in economic "opportunity" zones. Perhaps most importantly, if a site is remediated to residential standards, title to the property can pass free and clear, without any reference in the deed to hazardous waste ever having been on the property. Against this backdrop, my client and I were confident we could put the pieces together to remediate the site and still have a good investment property.

The combination of liability protection, flexible cleanup standards, and monetary incentives, in the form of a grant, and tax forgiveness, made the cleanup of the O'Brien site a real possibility for the first time. In the past, entrepreneurs were too risk-averse -- and with good reason, given both the cleanup standards requiring a return to a pristine state and the potential liability attached to touching a contaminated site -- to believe redevelopment of old sites to be financially attractive.

The million-dollar grant and the O'Brien Machinery site project show the lengths the Commonwealth has gone to in order to spur the business community's interest in land recycling. Using a unified community development approach, the Commonwealth launched in 1997 a "one-application" program by which municipalities and developers would fill out just one application for both grants and loans to be awarded from a variety of funding sources -- in fact, whatever funds are available from any Commonwealth program. The Borough of Downingtown, which has been trying for years to revitalize its downtown area, tried unsuccessfully for several years to obtain state funds to beautify the town while leaving the O'Brien Machinery site unremediated. When Gary Silversmith bought the debt on the property and approached Downingtown with his plan to remediate the site, they were all ears. By adding the O'Brien project to their funding requests, the entire borough stood to benefit.

The plan for redevelopment of the O'Brien site called for coordination among the Commonwealth, the United States, the county, the Borough, my client, and eventually a developer. Further investigation needed to be undertaken in order to determine what remediation was required at the site. PADEP and the EPA had to be satisfied that any cleanup would meet Act 2 Standards. In addition, the EPA had a lien on the property which had to be neutralized for the project to be viable financially. Chester County was owed significant amounts of back taxes which, if not forgiven, would also derail the project financially. The Borough was adamant that any redevelopment of the site had to be residential, not industrial or commercial.

Once these issues were identified, we had to coordinate their resolution. The first step was for me to make phone calls to all the players, determining their priorities and their willingness to be part of a partnership in the project. The next step was for me to set up a roundtable meeting with the PADEP regional office (Regional Director Bruce Beitler), a representative from PADEP headquarters (Act 2 guru Joel Boelstein), an EPA representative, my client, and our newly-hired environmental consultant Gary Brown of RT Environmental. After a fruitful meeting at which everyone expressed a desire to see the project brought to fruition, the Borough, working through its Main Street program and with input from my office, prepared the grant application and applied for funds under the unified "one-application" program. The funding sought was to undertake a variety of activities at the site, from decontamination of a three-foot thick concrete slab supporting the buildings to demolition of a contaminated and leaking warehouse covering 10 acres. Because the "one application" program removes the requirement that the grant-seeker figure out what funds it is entitled to, we did not have to specify, but merely suggested, where we believed the funds should come from. The Borough bundled its other revitalization funding requests in with the O'Brien cleanup.

We were thrilled to receive notice that the funds had been committed. In addition to the Borough's revitalization program, which was granted $500,000 in funds, the O'Brien project was granted $1 million, emanating from the Industrial Sites Reuse Fund, administered by the Department of Environmental Protection, and the Communities of Opportunity fund, administered by the Department of Community and Economic Development. According to the terms of the grant, matching funds are to be provided by the private sector, the County, and the Borough. The Environmental Protection Agency has agreed to the residential use of the site and is in the process of issuing, in conjunction with the Department of Justice, a prospective purchaser agreement for the site. In order to administer the grant, the Chester County Industrial Development Authority agreed to take title to the property until the grant money is used up or remediation is completed. Title will then revert to my client's nominee.

The project is a win-win-win for all concerned. Downingtown will be rid of an eyesore property that sat, perplexingly, in the middle of a well-maintained residential area of the Borough. The property, forecast after redevelopment to have townhouses and commercial mixed use, will provide ratables to the Borough and will revitalize Downingtown's downtown area. The developer will have the opportunity to make a successful project, doing good in addition to doing well. The state and federal governments, by providing seed money for the project, are spared the time, money and effort a completely government-financed cleanup would entail.